Corks may have been popping at the Inland Revenue to celebrate thebration. But the regime has been lambasted by practitioners. Theresa Sweeney reports. first anniversary of the self-assessment tax regime this April, but accountants and taxpayers were suffering from the hangover long before the party even began.
Blunders, mistakes and computer crashes are just a few of the milder complaints levelled at SA; the tax regime that places the onus of sending in tax returns correct and on time – and paying the right tax as well – squarely on the shoulders of the taxpayer.
Many taxpayers expect their advisers to do the job for them. ‘Accountants certainly had long nights and a lot of stress up until the deadline for returns. Part of the reason for this is the fixed date of filing for returns. Despite plenty of warning, some clients were still late,’ says Elspeth May, tax partner at KPMG.
The first SA tax returns were issued in April 1997 for the 1996/1997 tax year. The deadline for completion was 31 January 1998. And, for the first time ever, the Revenue advertised tax return submission deadlines on national television: get them in before 31 January or face automatic fines of #100.
To some extent the policy worked. The number of taxpayers returning their forms on time was higher than expected. The Revenue says: ‘We received 90% of returns due by the deadline of 31 January 1998 and error rates were significantly below expectations. In fact, around eight million tax returns of the nine million issued were returned on time. This includes about 95% of those who do not employ a tax agent.’
While these figures are higher than the Revenue expected, it claims that it is impossible to compare this with the previous year’s figures. ‘In the past, returns went out on a fixed date but were not due on any particular date. There is no direct comparison,’ says a spokeswoman.
The new structure was also supposed to clarify the method of calculating tax bills. SA has swept away the old system of issuing Revenue assessments, many of which were estimated using insufficient taxpayer details, and replaced it with a system in which taxpayers have to work out their own tax bills based on the information they provide in the return forms. This should have meant accountants had very little to do. With no appeals to lodge against incorrect Revenue assessments and everything contained on one simple form, taxpayers should be able to do everything for themselves.
‘We have been able to finalise a lot more liability by January than we could under the old system. Before SA, it took up to three years to finalise accounts,’ says the Revenue.
But of the approximate nine million taxpayers under SA, about five million people still had some sort of professional representation and accountants believe that this has something to do with the complexity of the current form.
Anita Monteith, chairman of the tax faculty at the English ICA, says: ‘The tax return was user-friendly, but as people started to use it many cases arose where it became unclear what to put on the form. Factors such as the accrued income scheme and dealing with interest posed problems.’
Calculation must be addressed
Advisers believe tax calculation is a bigger problem and is something that needs to be addressed. Baker Tilly found the tax calculation ‘horrendous’ to follow if it was done manually on the Revenue form rather than on a computer.
‘The tax working sheet was an absolute dog’s breakfast,’ says Chris Chadburn, head of tax investigations at Baker Tilly.
‘There is more responsibility placed on the taxpayer to get things right.’ But advisers say the Revenue has not upheld its part of the deal in getting things right first time and has itself made numerous slip-ups.
The Revenue promised to let taxpayers know how much tax to pay if the individual submitted their return early – by 30 September in the tax year.
Many never arrived.
‘The Revenue was late in issuing statements to accountants at the end of January. They were much prompted. We had given our clients their tax quotes by October or November, but the Revenue was late in processing the forms,’ says Gerry Hart, head of UK operations at the Tax Team, a subsidiary of the world’s largest tax return preparation organisation, H&R Block International.
But the Revenue was not the only one guilty of tardiness. Accountants’ clients were slow in sending information or accounts. But in spite of this, most taxpayers with accountants met the deadline because the advisers stayed up through the night to process the paperwork on returns sent to them at the last minute.
A major problem for accountants has been the slow processing of returns at the Revenue, particularly when it was inundated with returns in January. Experts had warned the Revenue about this, but claim it failed to create a system that could deal with the volume of last-minute returns.
As a result of the backlog, the Revenue did not process all of the returns on time and automatically issued 670,000 penalty notices of #100 for those it thought had missed the 31 January deadline. But a number of these notices went to taxpayers who had completed returns and sent them in before the dead-line. Such clients were not slow about getting on the phone to their professional adviser to complain.
One such mistake involved a married couple with a shared business, who were advised by the Big Six firm Arthur Andersen. ‘Each of the couple had identical figures on their return – one had a remittance for #25, the other for #25,000. The Revenue processed only one of the returns and said they didn’t owe any tax, after they had already paid the bill. This was clearly wrong,’ says Linda Foster, a senior tax manager at Arthur Andersen.
‘There have been some instances of stupidity where the Revenue has made a difference to a return of about ten pence. The clients will think that their accountants aren’t up to it, but that is not true. SA is all computer-driven. It doesn’t have that human aspect to review returns sensibly,’ says Hart.
The additional work of accountants has not necessarily been recognised either. ‘Accountants have had to spend a lot more time on SA,’ says Monteith.
‘They have had to find out a lot of extra information. They can’t pass on the cost of this to the client, because the client will ask: “Why are you charging more than last year?” I think tolerance is needed on both sides. I would like to see a more sensible attitude towards ignoring differences of a few pence. The Revenue computers should be programmed to ignore pence,’ says Monteith.
‘First-time’ excuse unfair
Others say penalties in the first year are an unfair system, as the Revenue has made mistakes too. ‘The person suffering through all this is the taxpayer, but if the Revenue makes a mistake it says: “We are bound to; it is the first year of a new system”, but the taxpayer gets a fine,’ says Hart.
Foster says: ‘Most people accept the system of penalties is fair. It encourages people to submit on time. It is just wrong when people think they have complied, but then find themselves penalised out of the blue for mistakes they haven’t made.’
The Revenue is now asking for views on where SA went well and where it needs improvement. Accountants are keen to take part and welcome the consultative approach. ‘The second time around should be far easier as many of the problems will have been foreseen,’ says Julie Evans, tax director at Pannell Kerr Foster.
If the Revenue listens to the criticisms, perhaps accountants and taxpayers alike will be able to pop the champagne corks this time next year.
Theresa Sweeney is a freelance journalist.
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